Most mortgages are repayment mortgages: each month you pay back some interest as well as a portion of the original loan. By the end of the mortgage, you have paid back the whole debt, including any interest in full.
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YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS. The FCA does not regulate mortgages on commercial or investment buy-to-let properties.
What is a flexible mortgage?
A flexible mortgage is a type of mortgage that gives you more options around repayment. For instance, you might be able to overpay substantially, or it could permit you to pay different amounts each month, giving you more flexibility than a standard mortgage.
Different providers have their own definitions, so always check what’s being offered to determine if it’s right for you.
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How do flexible mortgages work?
Flexible mortgages can vary from lender to lender, so it doesn’t always mean exactly the same thing. The most common options include:
Overpayment
Overpayment allows you to pay more than your standard monthly repayments. This can help you clear your mortgage quicker and reduce the amount of interest you pay overall. But check whether there are any limits on how much you can overpay, as you may be charged if you exceed these caps.
Underpayment
A lender may agree for you to pay less than the standard monthly amount for a set time. Lenders usually only allow this if you have overpaid previously.
Payment holidays
Some lenders allow you to take a break from making monthly payments for a set time, usually between one and six months. Remember that interest will continue to be charged while you’re taking a break, so you’ll pay more over the total term of the mortgage.
Drop-lock
If you have a tracker mortgage, a drop-lock feature lets you switch your mortgage to the security of a fixed rate without paying any early repayment charges or remortgaging to another lender.
Borrow-back
A borrow-back feature allows you to withdraw the money you’ve previously overpaid if you need it. This handy option means you can save on interest payments and use your flexible mortgage as a type of savings account.
Daily interest calculations
The interest you owe is calculated daily, so any payments you make are taken immediately into account. It’s much cheaper than other ways of calculating mortgage interest, such as monthly or yearly. If you overpay, for instance, your interest payments will drop straight away.
What mortgages can I get with flexibility?
Flexible repayment mortgage
Most mortgages are repayment mortgages: each month you pay back some interest as well as a portion of the original loan. By the end of the mortgage, you have paid back the whole debt, including any interest in full.
Flexible offset mortgage
Flexible offset mortgages use your savings to offset the interest you pay on your mortgage. For example, if you have a mortgage balance of £150,000 and £20,000 in savings, you will only be charged interest on £130,000.
Flexible fixed-rate mortgage
With a flexible fixed-rate mortgage, your interest rate and monthly repayments remain the same for a set time (usually two, three or five years).
Fixed rates are usually more expensive, but you get certainty in return. When the fix ends you can remortgage, or move your lender’s standard variable rate (which is often expensive).
Typically, a fixed mortgage will have fees attached if you want to overpay by more than a certain amount before your deal ends.
Flexible tracker mortgage
A tracker mortgage follows movements on another financial indicator, most often the Bank of England base rate.
Your rate, plus your monthly repayments, can go up and down. However, if your tracker mortgage includes a drop-lock feature, you can switch to a fixed-rate at any time.
What mortgages can I get with flexibility?
Flexible repayment mortgage
Flexible offset mortgage
Flexible offset mortgages use your savings to offset the interest you pay on your mortgage. For example, if you have a mortgage balance of £150,000 and £20,000 in savings, you will only be charged interest on £130,000.
Flexible fixed-rate mortgage
With a flexible fixed-rate mortgage, your interest rate and monthly repayments remain the same for a set time (usually two, three or five years).
Fixed rates are usually more expensive, but you get certainty in return. When the fix ends you can remortgage, or move your lender’s standard variable rate (which is often expensive).
Typically, a fixed mortgage will have fees attached if you want to overpay by more than a certain amount before your deal ends.
Flexible tracker mortgage
A tracker mortgage follows movements on another financial indicator, most often the Bank of England base rate.
Your rate, plus your monthly repayments, can go up and down. However, if your tracker mortgage includes a drop-lock feature, you can switch to a fixed-rate at any time.
Advantages and disadvantages of flexible mortgages
More freedom to overpay, underpay or even take a break from mortgage payments
Ideal if your income fluctuates, for instance, if you’re self-employed
Can help you pay off your mortgage more quickly and save money
Flexible mortgages typically have higher interest rates compared to standard mortgages
Different lenders will have different restrictions and terms and conditions
There will likely be limits on how much you can underpay and overpay
How to choose the best flexible mortgage for me
When comparing flexible mortgages, it’s important to consider which features would be most beneficial to you.
For example, if you’re thinking about taking out a tracker mortgage, you might like the security of a drop-lock feature. On the other hand, if your income tends to fluctuate, you might prefer a flexible mortgage that allows overpayments and underpayments.
Once you’ve decided on the features you need, compare mortgages to ensure the one you choose is suitable. Make sure to consider not only the rate, but also the mortgage term, how much of a deposit is needed and the fees involved.
Make sure you also check the terms, conditions and restrictions. These vary by provider, which is why it’s important to find the mortgage that best suits your circumstances.
Important limits to look for include:
Minimum monthly repayments - you can't pay less than this each month
Maximum repayment limits - the most you can overpay each month or year
Interest charges - if you take a mortgage holiday, interest will still be charged, your minimum repayment amount may increase after the break
Mortgage holiday requests - are not honoured unless you specifically request them
Flexible mortgages FAQs
Will I be credit checked if I apply for a flexible mortgage?
Yes, your credit rating will be considered when you apply. The better your score, the more generous offers you’re likely to get. If your rating is low, you may struggle to find a lender that will approve you. To find out more, read our guide on how credit scoring works.
Can I switch my standard mortgage to a flexible mortgage?
Possibly, it depends on your provider. It’s best to contact them to check if this is possible. Alternatively, when your current deal ends, you may be able to get a flexible deal if you remortgage.
Can I still incur fees if I over or underpay?
Yes, you may be charged if you breach your provider’s minimum and maximum repayment limits. Make sure you check the terms and conditions carefully to avoid being stung.
Can flexible mortgages be managed online?
Yes, many flexible mortgage lenders allow you to manage your mortgage online if you are registered for online banking.
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